On 13 June 2016 the Hungarian Parliament adopted an amendment to
the Civil Code which entered into force two years ago. The main
body of the amendment will enter into force on 1 October 2016, and
reintroduces the independent mortgage
(önálló zálogjog) which used to
be part of the Hungarian secured transactions regime under the
former civil code, and refines the rules of the security deposit
(óvadék). The primary aim of the amendment,
which entered into force on 1 July 2016 – according to
government communication – was to correct the Civil
Code's legislative and conceptual shortcomings and to simplify
the operation of Hungarian financial institutions, as well as to
ensure compliance with the Capital Requirements Regulation
Transfer of contract
One of the most important changes is the amendment of the rules
on transfer of contract, which enables the transfer of entire
contractual positions and thus loan portfolio transfers. The main
problem with the original rules was that the security interests
terminated as a result of the transfer (even if the security
provider consented to such transfer; however, in that case a new
security interest emerged on the same rank by force of law), which
was a huge barrier to loan portfolio transfers. The new rules
render that security interests remain in place if the
creditor's position changes, and the consent of the security
provider is only required if the debtor's position changes.
The new Civil Code prohibited the transfer of title for security
purposes (the so-called fiduciary securities) with some very
limited exceptions. Fiduciary securities were widely used for debt
securing purposes due to the inadequacy and relatively costly
nature of traditional security interests (eg mortgage, fixed
charge) under the old Civil Code. The last two years have shown
that the economy needs the cheap, efficient and flexible fiduciary
securities along with the rigid traditional security interests.
Since 1 July 2016, corporate entities are allowed to establish
call options, security assignments and other fiduciary securities
to secure their claims. It is important to note that the use of
these types of securities is still prohibited for transactions
between consumers or corporate-to-consumer transactions. Fiduciary
securities are valid only in the commercial sector.
The rules on the collateral register
nyilvántartás) are not affected by the
amendment, therefore fiduciary securities are not subject to
registration or filing, which may cause problems in the future
because independent third parties could not have information about
the existence of these types of securities.
From 1 October 2016 the independent mortgage will replace the
unsuccessful separated mortgage (különvált
zálogjog) which proved to be insufficient for the needs
of mortgage banks. The existing separated mortgages will be
converted upon the request of the mortgagor to independent
mortgages under a special process described in the amendment
In addition, the fact that a syndicate of lenders will be able
to appoint the security trustee before entering into the security
documents will be clarified. The current wording arguably
stipulates that all creditors have to sign the security agreements
prior to the appointment of the security trustee. The rules on
security deposit (óvadék) will also be amended.
Although, most of the amendment is of a technical nature, the scope
of the security asset will be extended to savings accounts
The new provisions of the amended Civil Code will apply to acts
and legal relationships arising and statements made after the
amendment entered into force.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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